Hot Dish Politics: Minnesota sales tax remains unloved but unchanged

One of the nastiest fights of the recent legislative session came over a proposal to dramatically broaden the state sales tax to include clothing and numerous consumer and business services.

The idea was to use the money to reduce the overall sales tax rate and then pay for other spending, like property tax relief.

Scorching criticism caused DFL Gov. Mark Dayton to ditch the plan early in a legislative session that left Minnesota’s sales tax system largely unchanged. Democrats and Republicans have long criticized that system, which has a relatively high tax rate but includes among the narrowest range of goods and services in the nation.

The proof is in the numbers.

The 9,500 businesses in Minneapolis logged $22 billion in sales in 2011, but less than $7 billion of that was taxable, state records show. All told, consumers in the state’s most populous city paid about $516 million in state sales and use taxes (use taxes are generally collected from out-of-state purchases, like through the Internet).

St. Paul’s numbers were about half that.

The city of Bloomington — home of the Mall of America — was the third-highest collector of state sales taxes. Bloomington businesses had about $10 billion in annual sales, ­collecting $192 million in state sales and use taxes, even without a tax on clothing.

Some cities on the Iron Range had the smallest volume of sales in the state.

Eveleth, site of the U.S. Hockey Hall of Fame and a community deeply tied to the mining industry, had the lowest sales tax collections of 136 cities tracked by the state.

Eveleth’s 95 businesses had $41.1 million in annual sales. Eveleth consumers kicked in about $1 million in state sales and uses taxes.

Minnesotans are not likely to see any dramatic sales tax changes anytime soon. With Dayton in the governor’s office and Democrats in control of the Capitol for at least another 18 months, this is probably the best chance for a dramatic rethinking of the state tax system.

Republicans have been nearly unanimous in their opposition to sales tax changes that would bring in additional revenue.

But Dayton said in a recent interview that he doesn’t plan to lead any new effort to expand the sales tax, particularly after the political blowback from his last proposal.

Advocates for overhauling the sales tax argue that the current system is antiquated, created at a time when most purchases were for products. But as the economy has evolved, ­consumers are buying far more services — like auto repair, tattoos and businesses services — that are not taxed.

That has left many states trying to broaden the sales tax to patch budget holes and make states less reliant on income, property and business taxes.

GOP leaders in North Carolina have looked at a proposal to lower the overall sales tax rate and broaden the base to include most services, food and prescription drugs.

But a poll last month showed that only 22 percent of North Carolina residents supported the plan.

Louisiana Gov. Bobby Jindal, a Republican, offered a proposal to scrap the state’s income tax and replace the lost revenue with a dramatic expansion of the sales tax to include more goods and services.

Jindal dropped his plan around the same time Dayton did after similar criticism from business leaders and retailers.

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